No Breakthrough Evident Following Trump, Democrats' Address to Nation

Upbeat U.S., China trade officials signal more talks ahead with complex issues remaining
Republicans and Democrats are scheduled to return to the bargaining table today after Tuesday evening televised remarks from both camps showed no resolution is imminent. President Trump did not declare a national emergency at the southern bord...

Republicans and Democrats are scheduled to return to the bargaining table today after Tuesday evening televised remarks from both camps showed no resolution is imminent. President Trump did not declare a national emergency at the southern border but called the situation a “crisis” in an attempt to get Congress to bend to his demands to fund a border wall. The president invited leading lawmakers from both parties to the White House at 2 p.m. CT for talks. The president and Vice President Mike Pence will attend lunch with Republican senators at the Capitol as well. China and the U.S. completed trade talks, which were extended into a third day, on an optimistic note. While differences linger on some of the harder issues, progress was made on energy and agriculture. The next meeting towards resolving the standoff is higher-level talks between U.S. Trade Representative Bob Lighthizer and Vice Premier Liu He, President Xi Jinping’s top economic aide, expected to happen later this month or in February after the Chinese New Year (Feb. 5-11).

— A wall between Democrats and Republicans. Democrats' response to a more sedate President Trump address to nation shows compromise on spending and border security issues is clearly not at hand. Trump said a barrier is necessary to prevent the movement of illegal drugs across the U.S.-Mexico border, and shared stories of human trafficking. Trump said the situation at the border represents a “growing humanitarian and security crisis” that can only be solved by Congress allocating $5.7 billion for a steel barrier along the border.

The president stopped short of saying he’d use emergency war powers to circumvent Congress by redirecting money from the military to build the wall.

After the president's address, House Speaker Nancy Pelosi (D-Calif.) and Sen. Chuck Schumer (D-N.Y.) issued an immediate televised response, rejecting the idea of a wall as unnecessary. Trump said illegal immigration is an important contributor to crime and a big cost to the federal government, while the Democrats said he overstates the problem. Pelosi called Trump’s remarks “full of misinformation and malice” and blamed his policies for deepening the “humanitarian challenge” at the border. Pelosi also highlighted the impact of the shutdown on federal workers and those who rely on government services. Schumer described the president as a child who shut the government because he didn’t get what he wanted.

Trump will meet with Pelosi and Schumer in the Situation Room today as the two sides resume negotiations. The shutdown is now into its 19th day. Meanwhile, Trump and Vice President Pence will head to Capitol Hill to meet with Senate Republicans today.

Other than continued talks, the next step to reach a solution is murky. Both sides have dug in deep on the issue. And despite House Democrats' efforts to bring up individual spending bills, Senate Majority Leader Mitch McConnell (R-Ky.) is refusing to bring House-passed legislation that fully funds the government up for a vote, despite at least three Republicans in his caucus calling for a vote to reopen the government without additional funding for the wall.

— U.S./China update:

U.S. and China have narrowed some differences on trade as day three of talks end. In three intense days of talks in Beijing, U.S. and Chinese midlevel negotiators addressed several difficult issues and tried to specify how to ensure China will carry out the pledges it made. The U.S. team is expected to leave Beijing soon.

“It’s been a good one for us,” Ted McKinney, USDA undersecretary for trade and foreign agricultural affairs, said at the end of the vice-ministerial level talks. The discussions had been “just fine,” he said, without elaborating. The talks were originally planned for Monday and Tuesday but were extended into today.

More details ahead. Lu Kang, China’s foreign ministry spokesman, confirmed at a press briefing that the talks had ended and said that more details would be released soon. “The extension of the talks indicates that both sides are serious about this consultation,” he said. “If the results of the talks are positive, it would be beneficial for both China and the U.S. and good news for the global economy.

Progress was seen on issues including purchases of U.S. farm and energy commodities, and increased access to China's markets,

Next step: More meetings soon, either later this month or in February, between more senior officials, such as China’s Vice-Premier Liu He, the chief trade negotiator for the Chinese side, and U.S. Trade Representative Bob Lighthizer, who is in charge of overall negotiations on the U.S. side.

China reportedly wants significant progress before the Lunar New Year on Feb. 4, which is generally preceded by a surge in consumer spending.

— Other items of note:

USDA announced an extension of the prior Jan. 15 application deadline for the Market Facilitation Program/Trump tariff aid payments. The deadline will now depend on how long the partial government shutdown lasts. The extension was widely expected.

Food stamp recipients will receive benefits through the end of February, said USDA Secretary Sonny Perdue, via authority under the funding bill that expired just before Christmas. USDA announced yesterday it has the authority through a provision in the lapsed spending law that allows the federal government to make obligated payments within 30 days of expiration. State agencies will need to request early issuance for February benefits on or before Jan. 20, Perdue said.

A coming Trump State of Union initiative that will be dead before arrival: President Trump plans to use his State of the Union address, on Jan. 29, to demand broader powers to raise tariffs via a bill largely written by aggressive Trump trade advisor Peter Navarro.

Democrats are demanding a delay in the Trump administration’s plan to lift sanctions on the aluminum businesses run by Oleg Deripaska, a Russian billionaire linked to the Kremlin, the Financial Times reported.

The U.S. government collected $6.7 billion more in customs duties in fiscal 2018 than in the previous fiscal year, according to the Treasury Department’s final monthly statement for fiscal 2018 (link). The extra revenue isn’t actually paid by foreign governments, but rather American companies importing those products into the U.S.

Focus on FOMC minutes will be on Fed assessment of economic risks. While the post-meeting press conference by Fed Chairman Jerome “Jay” Powell outlined Fed thinking that led to U.S. central bankers trimming their expectations for rate increases in 2019, release of the minutes today from the Dec. 18-19 session will provide more insight into the shift in Fed thinking. Attention will be on the potential risks to the U.S. and/or global economic situation that Fed officials saw in mid-December and their views on the financial situation. Traders will also focus in on any statements in the recap relative to the Fed's trimming of their massive balance sheet, a topic that Powell was asked about in his post-meeting presser. The meeting recap may also shed light into how Fed officials could react if economic data comes in weaker than expected in coming months.

The partial U.S. government shutdown has the sovereign credit rating of the U.S. on watch. "If this continues to March 1 and the debt ceiling becomes a problem several months later, we may need to start thinking about the policy framework, the inability to pass a budget... and whether all of that is consistent with triple-A," said James McCormack, Fitch's global head of sovereign ratings.

The U.S. federal budget deficit was $317 billion for the first quarter of fiscal year 2019, the Congressional Budget Office estimated, $92 billion more than the same period in fiscal year 2018.

The World Bank cut its forecast for the global economy as slowing growth in trade and investment and rising interest rates sapped momentum, especially in emerging markets. Global growth is predicted to fall to 2.9% from 3% in 2018. The World Bank said Chinese growth would slow to 6.2% this year from 6.5% last year. U.S. economic growth is now seen at 2.5% in 2019 and falling to 1.6% in 2020, marking a reduction of 0.3% from their prior forecast for the 2020 outlook. Downside risks to the world economy have become more acute, including the threat of “disorderly” market movements and an escalation of trade disputes, the development lender said yesterday in its semi-annual update to its global outlook. Debt vulnerabilities in emerging markets and developing countries have increased, it said. Link for details.

Oil prices continue to rise. West Texas Intermediate trading above $50 this morning, with Brent briefly rising over $60 a barrel. The main driver: renewed optimism over the global outlook as the trade dispute between the U.S. and China is moving toward a resolution.